TAG | 2008

I stumbled across this old article that Greg Mankiw wrote in 2000 (reposted on his blog). He writes:

Voting is a civic responsibility, they tell us, because democracy works best when everyone participates . . .
. . . The problem is, this isn’t true. Sometimes the most responsible thing a person can do on election day is stay at home . . .
. . . By not voting, they are doing themselves and everyone else a favor. If the ill-informed were all induced to vote, they would merely add random noise to the outcome . . .

So, therefore, if you voted because of “change” or “experience,” but did not understand either of the candidates’ policies, perhaps it would have been nicer for the rest of us who made an informed decision if you had just stayed home. For the record, Starbucks did not check to see if I had an “I Voted” sticker on when they gave me my free coffee.

Both John McCain and Barack Obama, like many politicians, are guilty of overusing rhetoric and eschewing substance. Particularly, there has been a lot of talk by both candidates about helping “main street” rather than “wall street.” I wanted to write about this, but the latest issue of The Economist did a better job of expressing my feelings than I could have.

Bankers have always earned their crust by committing money for long periods and financing that with short-term deposits and borrowing. Today, that model has warped into self-parody: many of the banks’ assets are unsellable even as they have to return to the market each day to ask for lenders to vote on their survival. No wonder they are hoarding cash.

This is why those politicians who set the interests of Main Street against those of Wall Street are so wrong. Sooner or later the money markets affect every business. Companies face higher interest charges and the fear that they may one day lose access to bank loans altogether. So they, too, hoard cash, cancelling acquisitions and investments, in order to pay down debt. Managers delay new products, leave factories unbuilt, pull the plug on loss-making divisions, and cut costs and jobs. Carmakers and other manufacturers will no longer extend credit (see article) and loans will become elusive and expensive. Consumers will suffer. Unemployment will rise. Even if the credit markets work well, the rich economies will slow as the asset-price bubble pops. If credit is choked off, that slowdown could turn into a deep recession.

Financial markets need governments to set rules for them; and when markets fail, governments are often best placed to get them going again. That’s pragmatism, not socialism. Helping bankers is not an end in itself. If the government could save the credit markets without bailing out the bankers, it should do so. But it cannot. Main Street needs Wall Street; and both need Washington. Politicians—and President George Bush is the most culpable among them (see article)—have failed to explain this.

I feel as if it is common knowledge that the whole idea of a bailout package is to prevent a catastrophic economic event. If this is the case, why are politicians allowed to get away with this “Main Street v. Wall Street” stuff? Why are moderators not calling them on this stuff in debates?

Generally, candidates for any election in the United States do quite a bit of pandering. And generally, the pandering they do is a wholly illegitimate take on a given issue. One such issue that strikes me in particular is free trade. Politicians regularly attack free trade by claiming that trade takes away jobs from Americans, and that it is bad for the country, etcetera. They do so even though virtually 100% of economists agree that free trade helps a lot more than it hurts. Yet, somehow, politicians get votes by bashing free trade.

My question is: how in the world is this strategy successful? For instance, during the nasty Obama-Clinton primary debates, both candidates continually tried to one-up each other by bashing free trade. Obama is now backpedaling on that issue for the general election, which indicates he was probably just trying to pander during the primary. If that is the case, then why would he not respond to Clinton’s anti-free-trade rhetoric with: “Your assertions are wrong. All economists disagree with you. Economists are trained to know whether free trade is good or bad. Would you want a professional bowler to act as your doctor when a doctor says the bowler is wrong? No. Would you want a doctor doing your taxes when a tax professional says the doctor is wrong? No. Would you want Joe Schmo down the street telling you how to set trade policy when all economists say he is wrong? Hell no.”

Or, better yet, he could explain why economists think trade is so great. He could explain that, yes, indeed, there are some downsides to trade, but the upsides are much greater. He could explain the concept of comparative advantage once explained by David Ricardo and the basic idea of the source of wealth from Adam Smith’s The Wealth of Nations. It would be a glorious moment for Mr. Obama and the entire country. It would be a rare occasion when a politician actually explained the pros and cons of an issue in a debate, and then explained why his side prevailed. It would not be the generic politician’s response to a question: say something incomprehensible and then throw as many buzz words and campaign slogans out to the crowd as possible. And significantly, it would require the opposing candidate to respond in a substantive manner.

How would someone respond to a clear argument about the benefits of free trade, an argument supported by an entire profession, followed by the question: if you disagree, please explain why?

If two candidates were in a debate, with one candidate pro-trade and the other anti-trade, and the pro-trade candidate explained the benefits of trade and uttered the “explain why” question, it would be a glorious moment of awakening in this country for several reasons. First, everyone watching the debate would learn about free trade – a topic most Americans are ignorant about. Secondly, it would be a rare occasion when a politicians in a major election actually debated the pros and cons of an issue rather than uttering buzz words and catch phrases to pander to whom he or she hopes is the majority voter. Finally, the candidate willing to actually debate the facts of an issue would likely be one of the smartest, most candid, and best candidates the country has seen for a long time.

The cynic in me says this would never work. The cynic in me says that Americans are too stupid to listen to real pros and cons of issues and figure out their own opinions – that is why buzz words and catch phrases at debates work so well. The cynic in me says that Americans would rather hear “I’ll get the government out of your pockets” than “A study by this prominent professor shows that tax structure X is better than tax structure Y.”

But I believe that this country is smart enough for real facts to come to surface in major political debates. Back in the revolutionary era, our founding fathers had nowhere near the kind of education that Americans have today. Even the worst educational systems in America today are miles ahead of anything our founding fathers had. Yet our founding fathers debated serious issues in politics, and people were very interested in knowing the cold hard facts. I think a lot of it had to do with the fact that politicians in those days treated the voters with respect. They didn’t try to pander the way politicians do today – they debated the theories of Locke and Montesquieu and argued passionately and intelligently. Regular citizens regularly read what the prominent politicians had to say and often wrote to the papers to voice their opinions. There are plenty of people out there today that would do the same, if today’s politicians would treat them like adults and argue the issues, rather than trying to argue using empty dialect.

This article is not an endorsement of either Barack Obama or John McCain.

I have no idea who I am voting for in this upcoming Presidential election, but I’m certainly looking more favorably upon Barack Obama after reading his reactions to John McCain and Hillary Clinton’s populist attack against gas taxes. From the New York Times:

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

I don’t know any prominent economist who favors this McCain-Clinton proposal.

First, we have to realize that the increased gas prices are, although inconvenient in the short run, somewhat of a blessing. People are quickly starting shift away from driving larger cars, which will lower gasoline consumption in the long run. Additionally, if gas prices remain high for a long period of time, economic theory tells us that people will start taking larger actions to lower their gas prices, such as telecommuting or living closer to where they work. Additionally, this shifts more demand toward alternatives to gasoline-powered vehicles, such as electric cars, that don’t pollute and are by nature more efficient per mile than gasoline cars.

But all in all, we shouldn’t be thinking about suspending gasoline taxes, we should be thinking about increasing them. Although gas prices are high, the consumption of gasoline creates large externalities, which is a market failure that should be corrected through taxation. Additionally, by taxing gasoline at a higher rate, we could offset the income tax and payroll taxes. So overall, we could stop taxing people from doing a positive activity (working) and start taxing an activity that creates a negative externality instead.

I’m tired of hearing the argument from Clinton and now McCain that you should not vote for Barack Obama because he lacks “experience.” The argument is simply not persuasive.

This argument assumes that the more time you spend being a politician, the more fit you are to act as President. I don’t buy it. In fact, because of the nature of politics in this country, often politicians become less fit to act as President the longer they are involved in politics.

To be successful in American politics, one must be willing to do what it takes to make and keep powerful friends. These friends can be interest groups, individual businesses, fellow politicians, political parties, or many other entities. These friends can provide a politician with a needed vote, verbal support, or, often most importantly, money. But there is no such thing as a free lunch. If a politician wants to make and keep these powerful friends, he or she needs to give something in return. Often it is a vote or a series of votes in return.

The problem is, the longer one wants to stay in office, the more loyalties he or she has to build to others to have the money and support necessary to be re-elected. The word loyalty in this context does not have a positive connotation. The only loyalty politicians should have is to their constituents as a whole and the country, not a particular constituent or entity or fellow politician.

So when someone gets elected President who has all of this “loyalty baggage,” he or she can face a difficult choice between proceeding in a manner which helps out the country as a whole or hurts the country in favor of one of his powerful friends. I would rather see someone in office with less loyalty baggage, so I know there is less of a chance that his or her decisions are motivated by a particular someone or something rather than the national interest.

The “experience” argument also assumes that one can appropriately prepare to be President by serving as a national politician. I disagree – at best it is marginal preparation. The job of President of the United States of America carries exponentially more responsibility than any other job anyone in this country could ever have. Serving as a national politician has far less individual responsibility and is under far less national scrutiny.

The best one can hope for with a President is that they are extremely smart and willing to work hard. Obama, at least, was president of Harvard Law Review. I can speak from experience that law school is extremely hard work, and the fact that Obama was president of Harvard’s law review is extremely impressive. Sure, perhaps he does not have the experience scratching backs that Hillary and McCain do, but I find that irrelevant, if not a positive for Obama.

Aside & Rant: I have no idea who I am going to vote for in the national election. Policy-wise, these candidates are all over the place for me, and I can’t pick one whom I fully support. I cast my vote in the Virginia primary recently, and although at the time I felt a bit emotional at the power of voting, right now I’m not extremely enthusiastic about anyone. I think I’m going to write in Greg Mankiw for president.